YOGYAKARTA, Indonesia (Reuters) - Indonesia wants emission cuts from preserving its vast carbon-rich peatlands to be eligible for trade in a new deal on combating global warming at upcoming climate talks, a forestry official said on Monday.

Under the Kyoto Protocol, developed nations can pay poor countries to cut emissions from activities such as the manufacture of refrigerants and fertilizers as well as capturing greenhouse gases from farm waste and rubbish dumps.

But emissions cuts from forest areas such as peatlands are not yet eligible for trade, because they were excluded from the Kyoto Protocol's first round which runs out in 2012.

"In order for Indonesia to properly preserve its peatlands, the world has to provide incentives, because we know that peat absorbs carbon more than anything else in the world," Wahjudi Wardojo, director general for forestry research at Indonesia's Forestry Ministry, told Reuters by telephone.

"We think the current scheme has to be reviewed. The carbon market should be allowed to finance restoration of degraded land and reforestation of any kind, because there should be incentives for any effort to reduce carbon emission."

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Wardojo is leading the Indonesian team that is drafting a proposal on cutting carbon emissions by keeping forests and peatlands intact at a major conference in Bali in December, which is expected to initiate talks on clinching a new deal by 2009 to fight global warming.

Under Kyoto, about 35 rich nations are obliged to cut emissions by 5 percent below 1990 levels by 2008-12.

"The draft will include long-term projections, showing that businesses can profit by taking part in the RED scheme by aborting peatland conversion projects than cashing in on palm oil," Wardojo said, just ahead of a three-day conference in the historic city of Yogyakarta on peatlands, described by some as the new black gold.

"Once completed, it will become Indonesia's ammunition to seal the new climate deal."

Participants from 189 countries are expected to gather in Bali for December's U.N.-led summit, which will hear a report on Reduced Emissions from Deforestation (RED) to decide the fate of a new scheme that aims to make emission cuts from forest areas eligible for global carbon trading.

HOT INVESTMENT TICKET

Peatlands are considered a hot new investment ticket and investors around the world are dreaming of the billions Indonesia's festering carbon-rich bogs could bring in as the world battles global warming.

Around $30.4 billion of carbon credits -- representing 1.6 billion tonnes of carbon dioxide (CO2) -- were bought and sold last year in Europe by firms aiming to trade off business-related carbon emissions for emissions cuts achieved elsewhere.

Experts estimate Indonesia has 20 million hectares (50 million acres) of dense, black tropical peat swamps, formed when trees, roots and leaves rot, that are natural carbon stores.

However, when burnt or drained to plant crops such as palm oil, peat releases big amounts of CO2.

A 2006 Wetlands International report found Indonesia's peatlands emit 2 billion tonnes of CO2 a year, more than the annual greenhouse gas emissions from Japan or Germany.

Indonesia is home to 60 percent of the world's threatened tropical peatlands and among the world's top three carbon emitters when peat emissions are added in, said a report sponsored by the World Bank and Britain's development arm.

"Among the challenges is keeping track of all the types of peatlands, their status and condition. Then to put a price tag on each of them is another major challenge," Wardojo said.